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COVID-19 (Coronavirus) and the Vancouver Real Estate Market with Economist Helmut Pastrick

The new Coronavirus, which results in COVID-19, is causing major uncertainty in the global economy and has the potential to trigger a large-scale global recession. But should we be ringing alarm bells just yet? And what does this mean for our real estate market in Vancouver? This week, we catch-up with Central 1 Credit Union’s Chief Economist, Helmut Pastrick, to talk best case/worst case scenarios, potential rolling recessions, how markets are responding to media and quarantines, and whether or not you and your money should stay home! At the very least, you should! This is a surprising conversation that will undoubtedly influence your plans for 2020. Listen up! And on a serious note, regardless of your age or vulnerability, please do your part and avoid large crowds and wash your hands. Take care, everyone – VREP

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Episode Summary

 

Who is Helmut Pastrick?

I’m the Chief Economist at Central 1 Credit Union, which provides services to all credit unions in B.C. and Ontario. We monitor the economy and the housing market for our member credit unions.

Will COVID19 (Coronavirus) cause a global recession or a Vancouver Real Estate Market collapse? Should we be afraid?

Not afraid, but concerned, yes. It has so far led to a downgrade in our predictions on the economy in 2020. The travel agency especially has been hit hard. Vancouver has a large cruise ship industry and that will affect the city as a whole. People will be less likely to gather in large numbers, especially due to the many cancellations of events. Our economy is relatively small and really depends on other markets. China is such a large market that it will affect us greatly.

On the other hand, interest rates have come down. The housing market as a whole has improved. The housing market was picking up pre-COVID19 and has gained momentum since then. Prices have continued to rise. There’s also been a change in the stress test. For insured mortgages, the benchmark rate will be based on the market rate, rather than the bank of Canada’s five year fixed rate. This shift will result in a lower rate, in turn improving the accessibility to mortgage financing.

Typically, sales will pick up in the spring, but the supply has remained low since last year. I’m expecting an upswing in prices.

How will COVID19 (Coronavirus) impact the Vancouver real estate market and economy in 2020?

I would think so, yes. Though we have also had an oil price war develop recently that has hit the market quite hard. It should be temporary though; 2021 should have better economic outcomes. After a few months when the virus’ effects on the supply chain are felt less, things should pick up. Most people expect this to happen by the second half of 2020. There may even be a rebound of the market.

We saw the biggest decline of the stock market since 2008 on Monday. Is COVID-19 (Coronavirus) going to trigger a global financial crisis?

It’s not like the great crisis in 2008. 2008 was a credit crisis but that’s not happening here. It’s a demand shock, with people withdrawing from the market and the supply chain being disrupted. More importantly, it’s temporary. We’ll get through this. There will be a vaccine developed eventually and activity will resume. There’s a lot of algorithmic trading by computers and that causes overreactions by the market overall. For those with the right time frame and approach, this is likely a buying opportunity. For most of us though, we should just ride it out.

Is there any relationship between the COVID-19 (Coronavirus) stock market declines and Vancouver real estate?

The economic relationship is quite minimal but it’s more on the psychological side. The substantial movements in financial markets can have an effect on the housing market. People will often want to wait for the market to settle before making a big purchase or decision.

Do you think that the money from the stock market will be redirected into real estate or tangible assets as a result of COVID-19?

To some extent. Gold is probably a good place to be, as well as real estate. Government bonds as well.

What is the worst-case scenario for Vancouver Real Estate as a result of COVID-19 (Coronavirus) in 2020 and 2021?

This pandemic spreads and lasts throughout 2021. The other continents continue to get infected at mass rates, especially in places like Africa or South America where their health systems aren’t as well equipped. It could become much worse. We could see a global recession. You see what’s already happened to the travel industry – you’ll likely see the same in the restaurant and hotel industries. We’ll see interest rates lower to closer to zero. But you’ll also see unemployment rise and the housing market will also stall.

Continuing down the worst-case scenario road, what kind of tools do you see the Canadian Government using to combat COVID-19 (Coronavirus) and the housing market and the Canadian economy?

Monetary policy can only go so far but we will see a fiscal response. There will likely be relief for businesses and some regulatory changes in terms of taxes. The Canadian government should be putting out a budget in the next few weeks, so we’ll see what comes of that. Canada’s federal debt is not exorbitant and can manage higher spending. If we incur more debt, we can deal with that in the future, but we need to get through this now. I would expect to see the same in other countries. But that won’t sure things, only mitigate them.

What is the long-term outlook for the Canadian economy and Vancouver Real Estate as a result of COVID-19 (Coronavirus)?

I don’t think it’ll have a huge effect on the future; most of the effects of this virus will be temporary. I hope it will help our health systems be better prepared and maybe encourage people to be better about personal hygiene. Climate change will have a much larger effect on the economy. We are well-positioned and have a favourable reputation around the world. We also have a good immigration policy that will mitigate the results of the baby boomer generation’s retirements in the next few years.

What other global events are similar to the COVID-19 (Coronavirus) pandemic?

Two come to mind, 2008 and 1981/82, when there was a global recession when inflation was “broken.” Interest rates were gigantic, up to 20%, trying to stop the rate of inflation. That completely outclasses today though. 1982 was worse than 2008, and this is ranked lower in severity.

How has social media and the media’s response to COVID-19 (Coronavirus) impacted the Vancouver Real Estate Market, the stock markets, and the economy at large?

We have instant news and that moves the market very very quickly. The internet has accelerated everything. In some ways, it helps; it allows everyone to be much better informed of what’s going on. Though there’s potential for misuse and misinformation to cause damage. You need to pay attention to your trusted sources and ignore those who have a poorer history.

What is the economic forecast for B.C. at the end of 2020? What about over the next five years?

Assuming that cases begin to diminish, there will likely be a pickup in Q3 or Q4, if not 2021. Though it’s probably less than 2% growth overall. Unemployment will also likely tick up a little bit. In five years time, I think the economy will be about 10-15% higher than today. Unemployment will be lower by then as well. We may well have another recession between now and then.

When it comes to housing, I think that housing activity will be higher this year than last. Prices will go up about 10%, mainly in the Lower Mainland, Victoria and Kelowna. In five years, they should be up 25-30% higher. The interest rate should remain lower, but likely raise a little. Affordability, measured by a few factors, will likely worsen in both the short and long term. Our supply compared to our demand growth will force housing prices to rise faster than incomes will. We need more supply, especially rental units. I predict that the units will keep getting smaller and smaller as well.

What is happening with British Columbia (Vancouver) Strata Insurance Deductibles and what will be the result?

I don’t understand it completely, but it seems that the major insurance agencies have incurred a lot of losses recently, and the best way to make that up is with increased premiums. Much of this is due to climate change, through floods and fires. It’s only going to get worse over the decades and there may be a case for governments to step in.

Find out more about Central 1 Credit Union

This Post Has 5 Comments
  1. He doesn’t have a clue… rebound in the second 1/2??? This is a global liquidity issue. Look at the repo markets/bonds. This is worse than 2008 watch.

  2. can you please interview someone who isnt completely biased? my prediction… the average canadian has 4 weeks savings. so in bc its like 4 days. job losses are already happening, businesses are closing, the exuberance is over. Real estate is going to be a ghost town for months. interest rates mean nothing when people are broke.

  3. This guy is dreaming…..in reality prices have already dropped at least 35% since last month. The economy is in free fall…..they will drop even more.

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